Charles Hugh Smith writes:
"The Grand Bargain is unraveling, and a new arrangement will take the place of the Status Quo--whether we like it or not.
"Correspondent Arnold suggested that I address the fiscal cliff, so here goes.
"The first step is to set aside ideological blinders and confirmation bias, i.e. only looking for data that supports our current beliefs.
"The second step is to look at the foundation of everything: household income.Household income is the foundation of taxes paid, consumption (spending) and savings/investment. If household income is declining, that means the pie of money that can be divided up into taxes paid, consumption and investment is shrinking.
"If taxes go up, there is less pie left for spending or investment. And since the economy ultimately depends on private-sector spending and investment, then reducing those to fund government spending means there will be less private spending and investment.
"If the government spent the taxes on investments that yielded a higher return than private investments, higher taxes would not devastate the economy. But the problem is that there are no feedbacks on government spending that favor efficiency or high yields. ..." click through for the rest.